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Federal Reserve Bank of Chicago
Economic Perspectives
Clearing over-the-counter derivatives
Ed Nosal
Abstract

Prior to the financial crisis of 2008, the over-the-counter derivatives market was not required to “clear” transactions. This changed with the signing of the new financial reform legislation, the Dodd–Frank Act on July 21, 2010. Going forward, most OTC derivatives will be cleared through a particular set of institutional arrangements: a regulated clearinghouse. This article provides an overview of how clearing works, the potential benefits of central clearing for OTC derivatives, and the optimal clearing structure.


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Ed Nosal, "Clearing over-the-counter derivatives" , Federal Reserve Bank of Chicago, Economic Perspectives, issue Q IV, pages 137-145, 2011.
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Keywords: Derivative securities ; Financial crises ; Risk management
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